The ASX’s dominant position in Australian share trading is set to be tested with the multi-billion dollar owner of the Chicago Board Options Exchange agreeing to buy its local competitor, Chi-X, and ramp up technology investments.
CBOE Group, the $US11 billion listed owner of the Chicago options exchange and various other global stock exchanges announced the deal to acquire Chi-X from its current owner, private equity firm JC Flowers on Thursday for an undisclosed amount.
Traders trade VIX contracts at the Cboe Global Markets exchange Credit:Scott Olson/Getty Images
Chi-X was founded in 2011 as an alternate listing venue to the ASX and while it has managed to claw more than 18 per cent of market share away from the dominant exchange, many traders and brokers still view the ASX as the sole stock exchange in this country.
However, the ASX has been criticised for suffering multiple outages which some observers have blamed on technology flaws and its monopoly position.
Cboe chief strategy officer John Deters said the company would bring new technology to Chi-X, and incorporate “learnings” from around the world to improve outcomes for market participants.
“We think about that in terms of doing what’s right for the customer. In our minds, it’s not so much about going after ASX per say, it’s about serving the Australian market with innovation and market resilience and choice.
“We take resilience and robustness of the technology platform very seriously,” he said. “It’s about cost, pricing … and the reliability of the service.”
The ASX suffered its third major outage in nine years last October and this week had to apologise to founders of fintech Airtasker after a processing error delayed the company’s initial public offering by one day.
Mr Deters had followed the ASX’s technology woes and did not want to criticise the company but said the technological fundamentals were critical to running a successful exchange.
“The equity trading world is incredibly complex. And it’s probably not appreciated by people who are not in it day to day. As a retail investor, you may execute a trade and it all works fine.
“But the plumbing and the details really really matter to brokers.”
Chi-X does not offer options trading at this stage, but Mr Deters said it was something they could explore in the future.
“Derivatives as a product have so much utility – they provide outcomes you can get with a cash stock market. In terms of seeking additional income, seeking asset protection and hedging,” he said. “To have a healthy robust market you need a diversity of market participants – retail, institutional, market markers, you need programs that speak to each of those constituencies.”
Options and derivatives traders, as well as market makers, have complained trading volumes on the ASX have been in structural decline for the past 10 years. The ASX has this year tried to stimulate activity by waiving clearing house fees for the first three months of this year.
One market maker at a leading global company, who spoke on the condition of anonymity, said he would switch “in a heartbeat” to Chi-X if it offered options trading.
“You’d be mad not to. The ASX has behaved as a classic monopoly,” he said. “I think it’s absolutely fantastic. It’ll be one of the best things for the market.”
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